What’s the Use Tax?

You know about sales tax.  But did you know about state “use tax”. If you did and you ignored it, you have plenty of company. But now, Rhode Islander’s — especially businesses — need to understand and account for it.

Use tax is essentially sales tax that does not get charged at the point of purchase by the vendor.  As a Rhode Island business, I pay 7% sales  tax on the computer I bought at the Apple Store at The Mall.  Now I go on Amazon and order the same computer and they do not impose sales tax.

Neat! Except that by law if you are a Rhode Island business (or resident) the sales tax — known in these circumstances as a “use tax” — applies to eligible items even if you buy them out of state or on-line.

And yes, Mr. Mad in Manville, most states that charge sales tax impose a use tax as well. Yes,  Incensed in Ipswich — Massachusetts too.

andersontoons.com

Then how does one report and pay this annoying tax?  For individuals you are expected to report and pay when you submit your personal tax returns. For businesses, accountability/exposure is higher and the state is actively auditing businesses.

The state can go back up to six years if the company has not been filing use tax returns and impose interest and penalties as well as the underlying tax due on items purchased for which sales tax was not paid.  Even if they do not find any material liability it’s an excruciating and time-consuming process — akin to visiting a proctologist, some would say.

The state is offering businesses the opportunity to “self-audit” and pay past amounts due, and in return will waive penalties and some interest.  But in any case, our company has been recommending that all companies begin to file use tax returns and pay the liabilities due.  We  are happy to help you in this process.